The majority of investment order executions that take place in equity markets are via electronic systems known as Electronic Communication Networks (ECNs). The ECNs allow the entry of any sized order (usually in lots of 100 shares), and are open to all market participants through a sponsored broker. In addition, ECNs maintain order books which contain all of the orders available on their system (price and amount available) and can be required by regulatory agencies—as is the case in the U.S. through the Security Exchange Commission (SEC)—to display to the general investing public certain ones of the best priced orders available on their systems.
Institutional traders handle the execution of orders on behalf of professional investors such as money managers, hedge funds, pension funds, and other investment professionals. The orders executed by these institutions are typically larger, sometimes vastly larger, than those executed on behalf of individual investors. Exposing these large orders to the general marketplace prior to order fulfillment can have an adverse effect on short-term marketplace stability.
Regulation NMS includes new substantive rules directed to three particular areas, Order Protection, Access, and Sub-Penny Display. The Order Protection Rule requires trading centers to create procedures designed to prevent the execution of trades at prices inferior to protected quotations displayed by other trading centers (i.e., a quote which is immediately and automatically accessible). The Access Rule requires fair and non-discriminatory access to quotations so as to harmonize the pricing of quotations across different trading centers, and requires exchanges to prohibit members from engaging in displaying quotations that lock, or cross, automated quotations. The Sub-Penny Rule prohibits market participants from displaying orders in pricing increments smaller than a penny for orders on shares priced greater than $1.00 per share.
What is needed in the art is a system that enables institutional traders to interact and negotiate on institutional orders directly with each other in a secure environment that is protected from non-institutional investors and/or traders who would capitalize on information related to institutional orders. Further needed is a system that permits anonymous interaction of institutional orders on the system that enables users to effectively interact with ECNs in a manner that minimizes their effect on a particular securities price in the general marketplace while complying with Regulation NMS. The present invention can satisfy one or more of these and other needs.